You just won the lottery and are offered the following payout: $1,000,000 immediately plus another 6 payments that increase by $500,000 per year. Thus in year one, you receive $1,500,000, etc. The EAR you expect to earn on reinvestment of your money is 8.5%. What is the minimum amount you should be willing to accept as a lump sum today rather than the payout over time? How does the return given in the form of EAR impact your answer?
You just won the lottery and are offered the following payout: $1,000,000 immediately plus another 6 payments that increase by $500,000 per year. Thus in year one, you receive $1,500,000, etc. The EAR you expect to earn on reinvestment of your money is 8.5%. What is the minimum amount you should be willing to accept as a lump sum today rather than the payout over time? How does the return given in the form of EAR impact your answer?
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter4: Time Value Of Money
Section: Chapter Questions
Problem 34P: You want to accumulate $1 million by your retirement date, which is 25 years from now. You will make...
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You just won the lottery and are offered the following payout: $1,000,000 immediately plus another 6 payments that increase by $500,000 per year. Thus in year one, you receive $1,500,000, etc. The EAR you expect to earn on reinvestment of your money is 8.5%. What is the minimum amount you should be willing to accept as a lump sum today rather than the payout over time?
How does the return given in the form of EAR impact your answer?
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